Saving Money and Reducing Debt

Philosophical Reasons For Not Borrowing Money (Or Using Credit Cards…)

A few months ago, I wrote a popular (and controversial) post about the fact that I do not use credit cards. In that post, I articulated the the practical and financial realities of living without a credit card. In this post, I will try to elaborate on my particular philosophical reasons for not borrowing money (including for the short-term with credit cards).

Fundamentally speaking, I dislike the idea of owing another person (or entity) money. At a “gut level”, I have never enjoyed the “borrowing money-owing money-paying money back” process. I dislike the time, paperwork, fine-print, and legalize involved in the actual debt transaction. I prefer the straightforward idea of exchanging money for goods and services, without the need for complex interest calculations or signatures. Whenever I make a purchase, I simply want to consider an items value, it’s actual cost, and the long-term benefits of the purchase. I do not like thinking in terms of payments, payment plans, and payoff dates.

I also enjoy the “simplicity” of using cash and I dislike the “emotional burden” of owing money. For the first 14 years of my adult life, I lived in a cycle of borrowing money, making payments, borrowing money, making payments… Now, I have the ability to save money and make a purchase, without the burden of interest charges or finance fees. The past two years of my life have been the most emotionally satisfying, spiritually fulfilling, and financially secure years of my life. Getting out of debt was the first step in a multi-step process towards financial security and long-term financial stability. I see no reason for “moving backwards” and borrowing money. As for the credit card miles or bonus points, I would not trade the “emotional reward” of being debt-free for all of the bonus points in the world.

I have a wonderful, rewarding job and I love the people for whom I work, but I would not enjoy my work if I felt obligated to stay with my current employer. In other words, being debt-free with an emergency fund allows me the freedom to work with passion and commitment, and to avoid working out of fear and compulsion. I have enough money in savings that I can “follow my heart” and work where I feel that I am needed, instead of working a job that I hate, simply because I need to “make my payments”.

Making a commitment to live debt-free and credit-free forces me to focus on my financial decisions. Day-to-day decisions, about how much to spend and what to buy, must be made with “real dollars” and not with hypothetical future dollars. Real story: Fifteen minutes ago, I got off the phone with a good friend who told me that a friend of his, a young man about 30 years old, was killed in a car wreck. The young man’s wife, also in her 30’s, is now facing the reality of life without her husband. Reason for this story? It is impossible to predict the future. Whenever you use a credit card (or borrow money) you are DEPENDING on NEXT MONTH’S PAYCHECK. Now, I’m not a doom-and-gloom kinda job, but I never want to put myself (or my family) in the position of DEPENDING on NEXT MONTH’S PAYCHECK. Now, I realize, of course, that in some ways, we all “depend” on next month’s paycheck, but you can clearly see my point. I refuse to be in the position where I am spending money that I “might” have in a month, a year, or a decade. I want to spend money that I already have, that I have already earned, and that I have already deposited.

I enjoy being different. There is something exhilarating about “swimming-against-the-tide”. In a SEA of personal finance bloggers (many of whom I admire and respect!) I am one of the very, very few to advocate against the use of credit cards. Clearly, there is something a bit “novel” about my approach to modern personal finance and I enjoy being a bit of a maverick. But, my “way” is working, very, very well, for my family and for our situation. After getting out of debt, a process that took less than one year, I have managed to save up a sizable emergency fund and I am currently on-track to save more than 50% of gross income in various retirement accounts. Having divorced myself from the notion that I would ALWAYS “live paycheck-to paycheck and borrow money” I have managed to, quite LITERALLY, change my life.

19 thoughts on “Philosophical Reasons For Not Borrowing Money (Or Using Credit Cards…)”

Nice reminder, I’m off credit as well (we have paid of 5 credit cards and we have 1 to go). We do plan to keep 2 credit cards after we are done paying off our debt in the event that we would need credit for traveling purposes but we won’t be using the cards for day to day transacations and any travel transactions put on credit would be paid with money set aside for the trip. Not using credit cards certainly makes me think more about how I’m spending my money since I’m only using a debit card or cash. Today, one of our friends invited us to join him to see a favorite band that is going to be in town. We plan to go but since it was an unplanned expense I had to really think about the purchase (we’ll need 3 tickets and there is a chance we’ll go out to dinner before the show). I’ve already paid all my regular bills, made my debt payments for the first half of May, and set aside cash for my May 1- 15 expenses so I don’t have a lot of extra cash on hand for unplanned expenses. Going to see a band doesn’t count as an emergency either. So I had to stop and think about how I was going to pay for the tickets, how much the tickets cost and where I could reallocate money from rather than just whip out the credit card. I think its a good change, to think about our money and to plan how we are going to use it.

What has worked for you, I think, is not a function of credit or no credit (CNC), but rather, your own ability to manage money and your drive. To be honest, I bet in your current state of mind, you’d do fine using cash or credit, IF…IF you wanted to use credit.

I still disagree with you in one aspect of your philosophy, credit is not evil…it is not moving backwards. Other than that, I applaud anyone who can live without any form of debt. Whether that’s financially the best move is highly dependent on the individual. But from a purely financial, non-emotional perspective, credit is a good thing to help someone’s bottomline.

I, like many (but obviously not most) other people, use credit cards but:
1) Always pay it off immediately without finance charges.
2) Have the money in the bank already (e.g. not waiting for the next paycheck).

I don’t like carrying around a lot of cash (95% of the time I carry $20 or less) so credit cards are a fantastic convenience! (plus, I get 1% back).

I do think the No Credit Needed philosophy is great though, we could use more of it in this country!

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I always pay off my CC balances. However, I definitely act different when paying cash. I think about it more before spending it. I’ve been doing more spending via CC now that I have a rewards card and it is definitely harder to remember how much you’ve budgetted for yourself.

Like any other financial instrument, credit has its place and purpose. For myself, I use my credit card for the overwhelming majority of purchases as it is simple and enables me to monitor expenses easily via statements / electronic summaries.

However, each purchase is supported by an equal amount of available cash, so practically speaking, the “borrowing” really only amounts to a “temporary transition” as the transaction is processed and ultimately paid.

Like any tool, it also has the potential to be misused, but I would not generally characterize it as evil. Quite the opposite, I find it to be a useful and advantageous instrument. Conversely, I would also say “to each his own” in terms of what tools they feel comfortable using. Even though I think you could squeeze out a bit more margin on your dollars using credit (float, incentives, etc)…I certainly wouldn’t criticize you for not doing so if it didn’t suit approach or situation.

Up until quite recently, I used my credit card for everything. I thought I didn’t spend any more than I would with cash, plus I got rebates.

I finally realized that no matter what I did, I would spend more with a credit card that with cash. Even though I always had enough money budgeted for using the credit card, with cash, I actually don’t want to spend the money.

I know some will say (and have said) this shows a lack of personal control. I believe it’s purely psychological in nature. As I said, I never overspent with the credit card. With cash, though, I am spending even less because I actively do not want to part with cash.

I understand how this changed has benefited you internally. I gather it has boosted your self esteem and that is valuable. I wonder if the change has benefited you tangibly in any way. I also wonder if your saving 50% of gross income is excessive. Tommorrow as you point out is promised to no one.

I seem to be in the minority of people in that I always fritter away cash. I’m much better at not keeping too much cash in my wallet and using plastic if I want to buy something that costs more than £10. I could use a debit card (and I often do) or I could use a credit card and I don’t have a philosophical difference between them.

But I imagine that it feels great to be different and peace of mind is indeed priceless.

I actually like using credit cards, purely for simplicity. I don’t believe in spending money that you don’t have or that you “should have”. I only spend on them what I know I currently have in my bank account.

I guess you are buying ahead but paying now. At least that’s how I think about it. The money I spend I have to deduct from our current checking, so it’s already spent. I hate that and I guess I should move to cash, but the cash just gets spent.

I find it easier to track daily all expenditure, and my husband isn’t responsible with cash. He will spend it and forget about it. I find it easier to track his spending with a CC and ask about it later. Then he’ll say “Oh yeah I bought this or ate this…” So it’s not easy to switch.

I think being aware of the psychological ways we spend more money is best:

* Don’t shop for groceries on an empty stomach
* Don’t carry lots of cash (make it more difficult to spend if you don’t have it immediately available)
* Use a handbasket instead of a cart or
* Use a shopping list, no impulse buys

poster who says her husband fritters away cash and so it’s easier to have him use a credit card:

The dude would stop frittering away the cash after he fritters it away one time and and has to go with only one meal a day for a week at the end of the month or eat the old freezer burn stuff that he forgot at the back of the freezer. That’s how you learn discipline, by running against a wall and resolving to pay for it in your behavior and with discipline. If you know you’ve got only $37 to buy food for the next 15 days of the month, you will spendthat $37 very mindfully.

People who use the cash system *do not* back up excess spending by using a credit card. They back it up with their guts. That is the secret–the buck stops at the end of the cash envelope or when the wallet is empty of those little green slips of paper we call “cash”.